Monday, September 14, 2009

Federal judge cuts through the bailout rhetoric in New York courtroom

Think it's been awhile since there's been any straight talk about last year's $700 billion taxpayer rescue of the nation's financial system? Well, the wait is over. A federal judge in New York has issued a scathing ruling rejecting a proposed $33 million settlement of a lawsuit arising out of Bank of America's regulator-arranged takeover of the failing Merrill Lynch brokerage house, according to the New York Times. The ruling by U.S. Judge Jed Rakoff accuses the government's chief regulator, the U.S. Securities and Exchange Commission, of being too lenient and blames BofA officials for failing to tell their shareholders that Merrill Lynch had paid as much as $4 billion in bonuses to its employees just before the merger. The lawsuit was filed by the SEC against BofA, but the judge said the SEC and the bank came up with the settlement to absolve themselves of any further responsibility. “The S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger,” the judge said, according to the Times, and “the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators.” The judge ordered the parties to trial in February, pending what is likely to be numerous appeals of the ruling. The decision came on the same day that President Barack Obama told Wall Street banking executives in New York that "we will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis.” Obama has proposed an overhaul of the federal government's financial regulatory system. The Times said the BofA case was one of several active investigations of the $50 billion merger, including one by New York State Attorney General Andrew Cuomo that is expected to result in a criminal complaint later this month. An investigation by the House Committee on Government Oversight and Reform also is underway, the Times said.